DineEquity, Inc. (DIN) is on the Hedgeye Restaurants Best Ideas list as a SHORT.
As you may remember from our December Black Book, we highlighted our belief that recent franchisee hardship would ultimately lead to unit closures. Overall, our key points included:
- Business fundamentals are deteriorating
- Franchisees are struggling
- Financials are strained / significant off balance sheet liabilities.
Well it now appears that the chickens have come home to roost, as struggling sales, aggressive discounting, and continued weak traffic have forced Applebees to permanently close its doors at multiple locations.
In a recent development, the Company reported yesterday that it has closed two locations, including the first unit to open in the Kansas City market, which opened its doors 30 years ago at The Watts Mill Plaza. The other unit closed was the Olathe, KS location on the outskirts of the Great Mall of the Great Plains, a mall that closed its door in mid-2015. An Applebees spokesperson did not disclose the specific reason for the closures, only stating that “From time to time, like other brands with large, national footprints, locations close. Restaurant closures occur for many reasons ranging from change in trade areas to lease and franchise agreement expirations.” However, it is safe to deduce that the brand’s recent struggles played a significant role, as franchisees are among those that have been hit the hardest.
Please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Analyst
